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Discussion Paper
Macroeconomic implications of investment-specific technological change
Hercowitz, Zvi; Greenwood, Jeremy; Krusell, Per (1992)
A quantitative investigation of investment-specific technological change for the U.S. postwar period is undertaken, analyzing both long-term growth and business cycles within the same framework. The premise is that the introduction of new, more efficient capital goods is an important source of productivity change, and an attempt is made to disentangle its effects from the more traditional Hicks-neutral form of technological progress. The balanced growth path for the model is characterized and calibrated to U.S. National Income and Product Account data. The long- and short-run U.S. data are ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 76

Discussion Paper
Federal fiscal constitutions part 1: risk sharing and moral hazard
Tabellini, Guido; Persson, Torsten (1992)
Inspired by the current European developments, we study equilibrium fiscal policy under alternative constitutional arrangements in a federation of countries. There are two levels of government: local and federal. Local policy redistributes across individuals and affects the probability of aggregate shocks, while federal policy shares international risk. Policies are chosen under majority rule. There is a moral hazard problem: federal risk-sharing can induce the local governments to enact policies that increase local risk. We investigate this incentive problem under alternative fiscal ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 72

Discussion Paper
Solving nonlinear rational expectations models by parameterized expectations: convergence to stationary solutions
Marcet, Albert; Marshall, David A. (1994)
This paper develops the Parameterized Expectations Approach (PEA) for solving nonlinear dynamic stochastic models with rational expectations. The method can be applied to a variety of models, including models with strong nonlinearities, sub-optimal equilibria, and many continuous state variables. In this approach, the conditional expectations in the equilibrium conditions are approximated by finite-dimensional classes of functional forms. The approach is highly efficient computationally because it incorporates endogenous oversampling and Monte-Carlo integration, and it does not impost a ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 91

Discussion Paper
Endogenous expenditures on public schools and persistent growth
Ravikumar, B.; Glomm, Gerhard (1993)
In this paper, we present a model where individuals accumulate human capital through the formal schooling. To take into account the large involvement of the public sector in education we introduce a government which collects taxes from households and provides inputs to the learning technology. In our model the public expenditures on schools and growth rates are determined endogenously. Under plausible restrictions on the parameters of our model, we show that the predictions of our model qualitatively match the observations on per capita income, years of schooling, public expenditures on ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 85

Discussion Paper
Fiscal policy, productivity shocks, and the U.S. trade balance deficit
Kollmann, Robert (1995)
A two-country Real Business Cycle (RBC) model is used to study the behavior of the United States trade balance. In this model, economic fluctuations are driven by productivity shocks and by variations in government purchases and in distorting taxes. The model is simulated using quarterly data on total factor productivity, government purchases, and the average tax rate in the seven major industrial countries during the period 197591. A version of the model that postulates complete international asset marketsas frequently assumed in the International RBC literature (see, e.g., Backus, Kehoe, ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 98

Discussion Paper
Fiscal spending shocks, endogenous government spending, and real business cycles
Ambler, Steve; Paquet, Alain (1994)
We analyze a real business cycle model in which the government optimally chooses public investment and nonmilitary current expenditures, to maximize the welfare of the representative private agent. We characterize the optimal response of endogenous spending to shocks to technology and to military expenditures. Comovements between the components of government spending and other macroeconomic aggregates predicted by the model are compared with the corresponding comovements in the U.S. data. The model captures the qualitative features of the relative volatilities of the components of government ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 94

Discussion Paper
The cyclical behavior of job creation and job destruction: a sectoral model
Greenwood, Jeremy; Zhang, Guang-Jia; MacDonald, Glenn M. (1994)
Three key features of the employment process in the U.S. economy are that job creation is procyclical, job destruction is countercyclical, and job creation is less volatile than job destruction. These features are also found at the sectoral (goods and services) level. The paper develops, calibrates, and simulates a two sector general equilibrium model including both aggregate and sectoral shocks. The behavior of the model economy mimics the job creation and destruction facts. Sectoral shocks play a significant role in determining the aggregate level of nonemployment.
Discussion Paper / Institute for Empirical Macroeconomics , Paper 88

Discussion Paper
Start-up costs and pecuniary externalities as barriers to economic development
Matsuyama, Kiminori; Ciccone, Antonio (1993)
One critical aspect of economic development is that productivity growth and a rising standard of living are realized through more roundabout methods of production and increasing specialization of intermediate inputs and producer services. We use an extended version of the Judd-Grossman-Helpman model of dynamic monopolistic competition to show that an economy that inherits a small range of specialized inputs can be trapped into a lower stage of development. The limited availability of specialized inputs forces the final goods producers to use a labor intensive technology, which in turns ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 83

Discussion Paper
On the economics of fiscal populism in an open economy
Benhabib, Jess; Velasco, Andres (1995)
We study a representative agent, open economy in which government-provided services that enter the domestic production function must be financed with distortionary taxes, and focus on the optimal size of government and the associated optimal tax rate. If the government can precommit its actions, it maximizes individual welfare by announcing and implementing a constant tax rate, which we label the orthodox tax rate. This tax rate is time inconsistent, and under discretion the government implements a tax that maximizes each periods output. We label this the populist tax rate. It may be higher ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 97

Discussion Paper
Priors for macroeconomic time series and their application
Geweke, John F. (1992)
This paper takes up Bayesian inference in a general trend stationary model for macroeconomic time series with independent Student-t disturbances. The model is linear in the data, but nonlinear in parameters. An informative but nonconjugate family of prior distributions for the parameters is introduced, indexed by a single parameter which can be readily elicited. The main technical contribution is the construction of posterior moments, densities, and odds ratios using a six-step Gibbs sampler. Mappings from the index parameter of the family of prior distribution to posterior moments, ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 64

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